Quarterly report pursuant to Section 13 or 15(d)

TRANSPORTATION AND DISTRIBUTION REVENUE

v3.22.2.2
TRANSPORTATION AND DISTRIBUTION REVENUE
 9 Months Ended
Sep. 30, 2022
Revenue from Contract with Customer [Abstract]  
TRANSPORTATION AND DISTRIBUTION REVENUE TRANSPORTATION AND DISTRIBUTION REVENUE
The Company's contracts related to transportation and distribution revenue are primarily comprised of a mix of crude oil, natural gas supply and natural gas transportation and distribution performance obligations, as well as limited performance obligations related to system maintenance and improvement.
Crude Oil and Natural Gas Transportation and Distribution
Under the Company's (i) crude oil and natural gas transportation, (ii) natural gas supply and (iii) natural gas distribution performance obligations, the customer simultaneously receives and consumes the benefit of the services as the commodity is delivered. Therefore, the transaction price is allocated proportionally over the series of identical performance obligations with each contract, and the Company satisfies performance obligations over time as transportation and distribution services are performed. The transaction price is calculated based on (i) index price, plus a contractual markup in the case of natural gas supply agreements (considered variable due to fluctuations in the index), (ii) CPUC and Federal Energy Regulatory Commission ("FERC") regulated rates or negotiated rates in the case of transportation agreements and (iii) contracted amounts (with annual Consumer Price Index ("CPI") escalators) in the case of the Company's distribution agreement.
The Company's crude oil transportation revenue also includes amounts earned for pipeline loss allowance ("PLA"). PLA revenue, recorded within transportation revenue, represents the estimated realizable value of the earned loss allowance volumes received by the Company as applicable under the tariff or contract. As is common in the pipeline transportation industry, as crude oil is transported, the Company earns a small percentage of the crude oil volume transported to offset any measurement uncertainty or actual volumes lost in transit. The Company will settle the PLA with its shippers either in-kind or in cash. PLA received by the Company typically exceeds actual pipeline losses in transit and typically results in a benefit to the Company. The Company records PLA volumes received in-kind in inventory.
When PLA is paid in-kind, the barrels are valued at current market price less standard deductions, recorded as inventory and recognized as non-cash consideration revenue, concurrent with related transportation services. PLA paid in cash is treated in the same way as in-kind, but no inventory is created. In accordance with ASC 606, when control of the PLA volumes have been transferred to the purchaser, the Company records this non-cash consideration as revenue at the contractual sales price within PLA revenue and PLA cost of revenues.
Based on the nature of the agreements, revenue for all but one of the Company's natural gas supply, transportation and distribution performance obligations is recognized on a right to invoice basis as the performance obligations are met, which represents what the Company expects to receive in consideration and is representative of value delivered to the customer.
System Maintenance & Improvement
System maintenance and improvement contracts are specific and tailored to the customer's needs, have no alternative use and have an enforceable right to payment as the services are provided. Revenue is recognized on an input method, based on the actual cost of service as a measure of the performance obligation satisfaction. Differences between amounts invoiced and
revenue recognized under the input method are reflected as an asset or liability on the Consolidated Balance Sheets. The costs of system improvement projects are recognized as a financing arrangement in accordance with guidance in the ASC 842 lease standard while the margin is recognized in accordance with the ASC 606 revenue standard as discussed above.
The table below summarizes the Company's contract liability balance related to its transportation and distribution revenue contracts as of September 30, 2022:
Contract Liability(1)
September 30, 2022 December 31, 2021
Beginning Balance January 1 $ 5,339,364  $ 6,104,979 
Unrecognized Performance Obligations 1,069,891  199,405 
Recognized Performance Obligations (439,106) (965,020)
Ending Balance $ 5,970,149  $ 5,339,364 
(1) The contract liability balance is included in unearned revenue in the Consolidated Balance Sheets.
The Company's contract asset balance was $10 thousand and $40 thousand as of September 30, 2022 and December 31, 2021, respectively. The Company also recognized deferred contract costs related to incremental costs to obtain a transportation performance obligation contract, which are amortized on a straight-line basis over the remaining term of the contract. As of September 30, 2022, the remaining unamortized deferred contract costs balance was approximately $781 thousand. The contract asset and deferred contract costs balances are included in prepaid expenses and other assets in the Consolidated Balance Sheets.
The following is a breakout of the Company's transportation and distribution revenue for the three and nine months ended September 30, 2022 and 2021:
For the Three Months Ended For the Nine Months Ended
September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
Crude oil transportation revenue $ 26,131,128  83.5  % $ 29,003,931 84.6  % $ 72,843,463  81.7  % $ 67,563,225  80.7  %
Natural gas transportation revenue 3,572,522  11.4  % 3,903,675  11.4  % 11,711,243  13.1  % 11,330,467  13.5  %
Natural gas distribution revenue 1,229,040  3.9  % 1,197,954  3.5  % 3,663,206  4.1  % 3,582,142  4.3  %
Other 372,856  1.2  % 180,834  0.5  % 961,822  1.1  % 1,206,042  1.5  %
Total $ 31,305,546  100.0  % $ 34,286,394  100.0  % $ 89,179,734  100.0  % $ 83,681,876  100.0  %